The Sunday Mail
Oliver Kazunga
Senior Business Reporter
CURRENT efforts by Zimbabwe to clear arrears and resolve its long-standing debt represent bold and significant steps necessary to unlock fresh low-cost and long-term external lines of credit, as well as increase foreign direct investment, economists have said.
Zimbabwe and its creditors are engaged in discussions to implement an arrears-clearance and debt-resolution programme, which saw key stakeholders meeting for the second time in Harare on Thursday last week.
The key stakeholders included President Mnangagwa; African Development Bank (AfDB) president Dr Akinumwi Adesina, who is the champion of Zimbabwe’s arrears clearance and debt resolution; and former Mozambique president Joachim Chissano.
Also partaking in the discussions were Finance and Economic Development Minister Mthuli Ncube, senior Government officials, the European Union officials, representatives of creditors from multilateral financial institutions like the International Monetary Fund (IMF) and the World Bank, as well as white former commercial farmers.
Statistics from the Treasury indicate that Zimbabwe’s total external public debt as at the end of September 2022 stood at US$14,435 billion, including the US$5,632 billion bilateral debt.
Zimbabwe has suffered collateral damage due to its unsustainable debt situation. It has not been able to access long-term financing for investments in key areas such as national infrastructure. It has also negatively impacted on the State’s ability to develop and meet the demands and expectations of its citizens.
According to the Zimbabwe Coalition on Debt and Development (Zimcodd), “Debt affects the capacity of the State to discharge its developmental responsibilities and the realisation of human rights — including social, economic and cultural rights”.
Zimcodd says the public debt is undermining the nation’s socio-economic development through compromised service delivery to citizens. This has manifested in a number of challenges the Second Republic is currently tackling.
Throttled by sanctions and limited access to credit, Zimbabwe has been left with little option but to use expensive financing options for its priority development programmes or innovated around domestic short-term instrument financing options, which in some instances negatively impacted the local currency.
In separate interviews last Friday, economic analysts hailed the milestones so far achieved by the New Dispensation towards giving Zimbabwe a new lease of life that is expected to see the country accessing new lines of credit to prop up the economic recovery programme.
Professor Gift Mugano, an economist, said the fact that a round-table to discuss the debt strategy, attended by all the key stakeholders, was successfully organised, was a positive milestone, which demonstrated a softening stance by the international community.
“So, we need to get to an agreed framework of clearing our debt and I am hoping that the effort we are putting here will be an effort that will not be put to waste.
“I also think that Zimbabwe has the potential of clearing the debt, particularly coming on the back of the reform agenda (proposed) to the creditors. If we sell the reform agenda, I don’t know what the Minister of Finance (Professor Mthuli Ncube) is holding, but that should be our sweetener and our selling point, to say let us restructure this debt so that we deal with all the debt, which has been creating problems and giving us high interest rates,
“Then there can be guarantors like Mozambique, which come in to say we are supporting Zimbabwe and we are going to guide in the reform process,” he said.
Prof Mugano said Zimbabwe’s total debt included the US$3,5 billion owed to white former commercial farmers as compensation.
Under the Global Compensation Deed, the Government has agreed to compensate the white former commercial farmers for improvements on the farmlands prior to the land redistribution programme, which started in 2000.
“In my view, that’s a debt (farmland compensation), but I don’t think we were supposed to do it that way. We were supposed to declare it as a national priority area to be assisted by development partners rather than to take it as a debt. The same way we declare a national state of disaster to be assisted.
“And if we have a restructured debt, that will then give us a new platform so that we can now borrow, by restructuring, it means we postpone the debt by taking the debt which is in arrears to a level that we are not in arrears, then we can ask for (new) borrowings,” he said.
“If these parties are in agreement that we restructure the debt, the issue of sanctions, to say we cannot borrow because we owe (financiers), will have to fall away because we will not be having anything in arrears.”
Prof Mugano said, for Zimbabwe to be classified under the Heavily Indebted Poor Countries (HIPC), as one possible debt resolution strategy, as an option to deal with the debt challenge, would not be the move for the country because there are certain fundamentals that should be in place.
“To be classified under HIPC, a country should be having low income per capita and, as Zimbabwe, we are classified under the lower middle-income economy, so that indicator alone will disqualify us to be a Heavily Indebted Poor Country.
“And I don’t think that will be good for us to move in that direction (HIPC) because it also affects other things like trade, and how you are going to be looking at investors and when you are in the HIPC category, you are also telling the investors that the country is not worthy to be invested in,” said Prof Mugano.
The Zimbabwe National Chamber of Commerce (ZNCC) past president, Mr Trust Chikohora, said the successful implementation of the arrears-clearance and debt-resolution framework will expose the country to new lines of credit.
“It will also help towards the normalisation of the debt situation for Zimbabwe and if we get more capital, for instance, for infrastructure rehabilitation and development, this will result in the creation of new industries, existing industries retooling, while also facilitating mining ventures and beneficiation projects and, thus, fast-tracking economic growth.
“It will also help in stabilising our currency because, if we get more foreign currency through lines of credit, that helps to stabilise the local currency. We hope that the Zimbabwe arrears-clearance and debt-resolution process currently underway will yield positive results.”
Mr Christopher Mugaga, an economist and ZNCC chief executive officer, said the significance of the country’s arrears-clearance and debt-resolution process signifies Zimbabwe’s commitment to re-engage with the international community.
This is also in sync with the Second Republic’s re-engagement agenda with the international community to thaw relations, which, for two decades, have been souring after the successful land reform programme.
“The significance of the debt-clearance process shows Zimbabwe’s commitment to re-engage with the international world, including the West, as we move forward.
“Secondly, the private sector has not been accessing offshore funding due to sovereign risk that has been on the high side. The local private sector can only get credit lines offshore when the sovereign risk is under control,” he said.
“If the debt negotiation and rescheduling is successfully implemented, then we are also telling the world that we are committed to any type of reform that is progressive and good for Zimbabwe and the foreigners also.”
On the extent to which Zimbabwe’s debt relationship has impacted the economy, Mr Mugaga said the country’s debt position, even after clearing the IMF debt, other multilateral institutions can also not lend the nation new money.
This, he said, was because the IMF also relied on the trust of other institutions such as the World Bank and the European Development Bank that Zimbabwe
owes.
“So, the impact of our external public debt has seen us losing a lot of friends, as well as weakening our correspondent bank relationship.
“The only bank that we can trust as a correspondence bank at the moment is AfreximBank and outside that institution, we are weaker because most banks don’t have relationships with Zimbabwean banks because of our debt position.”
Mr Mugaga said the first option for Zimbabwe in working towards clearing its arrears was for the country to put itself in a corner that would require the settlement of the debt in a short space of time.
“This is because the fiscal space is so limited for us to clear the debt in a short period.
“The best route is to restructure the debt more than to repay it in a short time because, once you start paying a debt in a short space of time, the opportunity cost is we are foregoing other development projects that should have taken that money and, thus, putting ourselves in a more cycle of poverty.”
